American, US Airways to form largest U.S. airline

Thursday, February 14, 2013

AMR Corp, the parent of American Airlines, and US Airways Group have agreed to merge under the American Airlines name, creating the largest carrier in the United States.
Since AMR is still under restructuring, the deal is contingent upon approval by the U.S. Bankruptcy Court for the Southern District of New York.
The boards of both companies approved a merger yesterday after months of negotiation behind closed doors and endless speculation by the press. The merger is expected to be completed in the third quarter, and in a conference call, Doug Parker, chief executive officer of US Airways, anticipated no surprises from regulatory authorities.
“I’ve long been a proponent of industry consolidation,” Parker said during the call. “I think this is the last major piece needed to fully rationalize the industry, enabling airlines to be intensely competitive but also sustainably profitable.”
Once the merger is complete, American becomes the largest airline in the United States, followed by United and Delta.
Tom Horton, American’s president and CEO, will take over as chairman of the combined carrier for the first year. Parker will work as CEO of the airline and take over the chairmanship when Horton steps down. The board will be comprised of five AMR creditors, three American Airlines representatives and four representatives from US Airways. AMR owns 72 percent of the combined company.
On a conference call, Horton detailed the benefits of what he called “a truly new American.” The combined carrier will have a network of 6,700 daily flights to 340 destinations, giving American a better international network. The two carrier’s networks complement each other, with minimal shared routes. The merger will also allow American to operate from a strong financial foundation, continue to make investments and provide some clarity regarding labor agreements, Horton said during the call.
“It’s taken a tremendous amount of work in a relatively short span of time to reach this important day and the possibilities that it brings,” Horton said. “With our own house in order, this merger is the best path forward to make the new American even stronger.”
American’s emergence from Chapter 11 bankruptcy is still not complete, and Horton said benefits of the restructuring will begin to surface in the first and second quarters. During the transition planning, both parties will look for synergies and additional ways to help the new company, working within the confines of antitrust rules, operating US and American as separate companies until the merger is complete. Both companies will put together transition teams to start planning how the new company should look and operate.
That transition will involve some network rationalization, but those plans will have to wait until the merger is approved. Horton did allow that the plan is to keep all current hubs intact, but that they may need to consider network decisions that create the best return for shareholders.
“There will be some changes,” Horton said, “but it’s going to be built on the notion that we’re going to retain and build our existing hubs.” - Jon Ross